St Martini Garden is an old block of flats in the Cape Town CBD right next to the Company Garden. Again prices are completely out of whack with rents. A one bedroom flat rents for R2600 a month, and they're for sale from R699 000 (I assume that's for the bachelor, but we'll assume it's the price of a one bedrom). Here's the cashflow and yield assuming 11% interest over 20 years:| Down Payment | Monthly Cash Flow | ROI |
|---|---|---|
| 100000 | -3593 | -43 |
| 200000 | -2561 | -15 |
| 300000 | -1529 | -6 |
| 400000 | -497 | -1 |
| 500000 | 536 | 1 |
| 600000 | 1568 | 3 |
| 700000 | 2600 | 4 |
Not pretty at all. That's almost 2% less than a fixed deposit. Remember rates, maintenance, insurance and vacancy are not included so the returns are probably a bit less.
1 comment:
It needs to be remembered that a lot of the speculation was or is either banking on the appreciation of the price of the property itself, or on fear that in future those who don't buy now won't be able to own property when they're older.
I've heard several state that they don't care if they're breaking even or experiencing negative cashflows. They believe they either must get into property now because there apparently won't be a chance to do so in future (per someone) or they're apparently going to make a fortune (per someone) when they sell their property in a few years time - and therefore all the losses will have been worth it.
The question though should be the capacity of private individuals to support such losses, as well as debt.
Wayne
www.commentary.co.za
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